Q3 2023 Public Storage Earnings Call

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If anyone should require operator assistance during the conference call. Please press star zero on your telephone keypad. As a reminder, this conference is being recorded it is now my pleasure to introduce your host Ryan Burke, Vice President of Investor Relations for public storage. Thank you. Mr. Burke you may begin.

Thank you Ron and Hello, everyone. Thank you for joining us for our third quarter of 2023 earnings call I'm here with Joe Russell and Tom Boyle before we begin we want to remind you that certain matters discussed during this call may constitute forward looking statements within the meaning of the federal Securities laws. These forward looking statements are subject to certain economic risks and uncertainties.

All forward looking statements speak only as of today October 31, 2023, and we assume no obligation to update revise our supplement statements to become untrue because of subsequent events.

A reconciliation to GAAP of the non-GAAP financial measures. We provide on this call is included in our earnings release, you can find our press release supplement report SEC reports and an audio replay of this conference call on our website at public storage Dot Com. We do ask that you initially keep your questions to two of course after that feel free to jump back in the queue with that.

I'll turn the call over to Joe.

Thank you Ryan and thank you all for joining us today.

Tom and I will walk you through a few highlights for Q3, and then I'll open up the call for questions.

Each team at public storage has successfully exercising our platform wide advantages and a more competitive environment as demonstrated by third quarter performance and our raised outlook for the remainder of 2023.

As we entered this year and expectedly, we saw numerous move and customer demand for the sector shift lower particularly with softening existing home sales due to the rapid rise in home mortgage rates.

On the flip side, there has been solid and increased demand from new customers that are renters.

They have proven to be very good customers as well, particularly from a length of stay perspective.

We have the right team technologies and analytics to determine the appropriate mix of marketing promotions and rental rates.

Drawn by these top of funnel tools, along with our leading brand self storage users are clearly choosing public storage.

Our strong move in volume coupled with healthy in place customer behavior has led to better than expected occupancy trends with our same store occupancy gap narrowing from 250 basis points at the beginning of the year.

To 120 basis points at the end of September.

And to 60 basis points as of today.

Our digital and operating model transformation continues to be a significant enhancement to customer experience and our financial profile.

Customers benefit from having digital options at their fingertips across their entire journey.

Our proprietary digital ecosystem is a compelling reason to choose us.

With over 60% of our customers running through our online leasing platform and today, we have more than 1.4 million PFS app users.

And our financial profile benefits as well.

We are putting these digital tools in the hands of our customers and employees for convenience combined with in person onsite customer service, when and where it is needed.

The result is a better customer experience and enhanced margins, particularly in regard to labor efficiencies.

We are also growing our portfolio amidst broader market dislocation.

Our industry, leading NOI margins multifactor in house operating platform.

Access and cost of capital and growth oriented balance sheet put us in a very unique position.

So far this year, we have acquired more than $2 $6 billion worth of properties, including the $2 2 billion simply self storage portfolio comprising of 127 properties.

As is our regular practice every property was fully integrated into the public storage platform on day one.

And we welcomed over 250, new associates in approximately 90000 customers.

We are also ahead of schedule on re imaging the entire portfolio to public storage to ensure the maximum benefit from our industry leading brand.

We will have also delivered $375 million in development by year end and have a pipeline of nearly $1 billion of development to be delivered over the next two years.

Since we updated you last quarter the sharp move in interest rates has backed up the acquisition market with fewer deals likely to trade by year end typically our busy time of year for asset closings.

We are actively engaged with a full range of owners that give us confidence that some sellers expectations will adjust as the cost of capital has clearly increased.

Our advantages enable us to acquire and develop when others can't.

We have a strong appetite to grow our portfolio as seller expectations continue to correct.

And we have a matching ability to execute.

Now I'll turn the call over to Tom.

Thanks, Joe.

We reported core <unk> of $4 33 per share for the third quarter, representing five 6% growth year over year, excluding the contribution from PS business parks.

Looking at the key components for the quarter same store revenues increased two 5%.

As Joe mentioned moving rental rates continue to be lower for us in the industry, but we're seeing strong move in volume along with the right mix of marketing spend and promotions.

Our existing customer base continues to perform well with move out volumes further moderating this quarter.

These trends largely continued in October with the year over year occupancy gap narrowing to 60 basis points as of today as Joe mentioned.

On expenses same store cost of operations were up two 8% leading to two 4% stabilized same store NOI growth at an industry, leading operating margin of 80%.

Our largest market Los Angeles continues to lead our portfolio. The 214 properties in the same store pool grew NOI by 6% on steady demand and limited new supply of facilities.

In addition to the same store the lease up and performance of recently acquired and developed facilities continues to be a standout with NOI, increasing nearly 20% year over year in the quarter.

This pool of 685 properties and more than 60 million square feet comprises nearly 30% of our total portfolio today and is a strong contributor to <unk> growth today and into the future.

Shifting toward the outlook, we sit here in October raising our core <unk> range once again, increasing both the low and high ends to $16.60 at the low end to $16.85 at the high end.

Last but not least our capital and liquidity position remain rock solid we are well positioned with a strong appetite for growth coupled with the ability to execute in a dynamic capital markets environment.

Rob with that let's please open it up to Q&A.

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My first question comes from Michael Goldsmith with UBS. Please proceed with your question.

Good afternoon. Thanks, a lot for taking my question.

We continue to navigate the environment well, though the guidance implies continued deceleration into the fourth quarter for same store revenue growth and same store NOI growth with both turning negative at the midpoint. So what are you seeing in October to this point and how are you viewing how the last two months of the year will play out.

Yeah. Thanks, Michael Good question, so I'll provide a little bit of context on the same store revenue outlook for the remainder of the year and then specifically speak to to October.

As we've spoken to in the prepared remarks, the environment for new move ins continues to be competitive and that's persisted through the second half as we sit here in October we and the industry are responding with lower rental rates promotions as well as advertising, but on the flip side, we're seeing good move in volume growth those 10.

<unk> are staying longer than last year, and our existing tenant base has been strong.

And when we look at the exit rates for move in rates and occupancy to give you a sense of what's assumed in our outlook.

On move in rates, we assume that at the midpoint move in rents are down circa 18% at the midpoint.

The high end of our outlook assumes 13% decline year over year in the low and 22%.

On the occupancy side, the midpoint assumes that we hold the year over year decline from September at about 120 basis points decline year over year.

At the high end of the range, we nearly closed the gap to.

Last year by the end of December.

And obviously at the low end are we to go backwards on occupancy towards the end of the year.

Speaking specifically to October we've.

We've seen again, good volumes, but at lower rates.

As we look at that move in rental rate decline on an apples to apples basis move in rents are down call. It 18% in October to date, obviously today will wrap up the months.

We and others ran some fall and Halloween sales on select units in the back half that will cause a little bit of a decline in that towards the back half of the month.

But overall seeing very good volumes volumes up nearly 9% in the month of October so the tools that Joe highlighted continue to work very well.

And I would point again to existing customers performing well move outs were down or actually are down year over year. This month to date.

And the occupancy gap as Joe highlighted.

Has improved to down about 60 basis points today. So we're seeing good good customer traffic and existing tenant performance.

Essentially that's really helpful and my follow up question is on the existing customer you've talked about in the past or the existing customer.

How they respond as a function of price sensitivity.

You see a rise or a function of price sensitivity and the replacement cost given the pressure on move in rates.

Do you think about the ECR ECR I philosophy heading into the back half of the year or heading into the through the fourth quarter, just given what you've seen from the customer and then.

Separately as a follow up to the first part is there any change in your guidance philosophy.

<unk> been able to hold your guidance pretty flat through the year or at least the high end of the guidance hasn't been raises as the low end has moved up and now you're finally touch the high end so any change in philosophy on the guidance as well thanks.

Okay.

A lot Michael but let's step through that so on the existing customer rate increases at a I would reiterate what we've been saying really all year, which is on the first component, which you highlighted which is customer behavior and are our expectations for customer behavior continue to be.

<unk> met or exceeded frankly, as we move through the year and so that side of the equation has been quite strong. It's been one of the drivers that's led to better performance through the year.

And then the second component cost to replace continues to get more challenging so as we've highlighted throughout the year to date, that's led to lower magnitudes and lower frequencies of increase to customers.

No real change there.

In terms of talking points. The second component of your question related to guidance and so we did lift the lower end as well as the higher end of our guidance range this quarter.

And.

In February we were pretty upfront and described.

The different pathways that we could take through the year, we've been encouraged by the pathways that we ultimately executed upon in.

Towards the high end of.

Of that range and again lifted the high end this quarter and I think I use some guideposts around the macro economy at that time as well too.

To frame the outlook and I think we're all somewhat pleasantly surprised by the macro economy, and obviously, a strong third quarter GDP print.

That further reinforces the performance towards the higher end of that original guidance range.

Yeah, Michael one thing just a little bit more context on existing customers again, we're all looking to the prints that Tom just mentioned, but month by month through this year, we've been quite and pleasantly surprised by the consistent behavior existing customers, we're not seeing any new or.

Operator: Generalist and Only Mode. A brief question and answer session will follow the formal presentation. If you'd like to ask a question at that time, please press star one on your telephone keypad. A confirmation to help indicate your line is in the question queue. If anyone should require operator assistance during the conference call, please press star zero on your telephone keypad.

Emerging stress coming through the economy continues to support our customer base quite well, we're not seeing again.

Operator: As a reminder, this conference is being recorded.

Ryan Burke: It is now my pleasure to introduce your host, Ryan Burke, Vice President of Investor Relations for Public Storage. Thank you, Mr. Burke, you may begin. Thank you, Rob. Hello, everyone. Thank you for joining us for a third quarter of 2023 earnings call. I'm here with Joe Ross-Lonton Boyle. Before we begin, we want to remind you that certain matters discussed during this call may constitute forward-looking statements within the meeting of the federal securities laws.

The level of.

Additive stressed high delinquencies et cetera, so continuing to see very very consistent behavior from existing customers, which is very good for the business.

And again, assuming the economy at large continues to do what it's doing we think we're in very good shape again going through the rest of this quarter and then setting up for 2024.

Ryan Burke: These forward-looking statements are subject to certain economic risk and uncertainties. All forward-looking statements speak only as of today. October 31st, 2023, and we assume no obligation to update, revise, or supplement statements to become untrue because of subsequent events. A rexinsiliation, two-gap of Menongap financial measures we provide on this call is included in our earnings release. You can find our press release supplement report, SEC reports, and an audio replay of this conference call on our website at publicstorage.com. We do ask that you initially keep your questions to two. Of course, after that, feel free to jump back in the queue.

Thank you very much.

Our next question comes from Steve Sochua with Evercore ISI. Please proceed with your question.

Great. Thanks, maybe first just talking on the transaction market it sounds like.

You may be starting to see some sellers capitulate I'm just wondering hi, Joe how are you guys changed your underwriting criteria you know on the either revenue or NOI growth side, IRR side cap rate side and how wide do you think the bid ask spread is today.

Joe Ross-Lonton Boyle: With that, I'll turn the call over to Joe. Thank you, Ryan, and thank you all for joining us today. Tom and I will walk you through a few highlights for Q3 and then open up a call for questions. Each team at Public Storage is successfully exercising our platform-wide advantages in a more competitive environment as demonstrated by third quarter performance and a raised outlook for the remainder of 2023. As we entered this year and expectedly, we saw a new move and customer demand for the sector shift lower, particularly with softening existing home sales due to the rapid rise and home mortgage rates.

Yes, Steve So again, a lot of moving parts there.

And as you spoke to we clearly need to be very conscientious of change and cost of capital one of the things that step by step as I alluded to with a very high degree of dialogue, we're having with all different types of owners the realization of a <unk>.

Trading market is starting to play through.

Clearly some entities may have more pressure points.

Likely not tied to the actual performance of the asset of the portfolio, but may be more particularly tied to any capital event that may be emerging again tied to the very different environment that an owner would go through to reset and existing capital structure and how to deal with that.

Joe Ross-Lonton Boyle: On the flip side, there has been solid and increased demand from new customers that are renters. They have proven to be very good customers as well, particularly from a length of stay perspective. We have the right team, technologies, and analytics to determine the appropriate mix of marketing, promotions, and rental rates. Drawn by these top of funnel tools, along with our leading brand, sell storage users are clearly choosing public storage. Our strong move in volume coupled with healthy in place customer behavior has led to better than expected occupancy trends with our same store occupancy gap narrowing from 250 basis points at the beginning of the year to 120 basis points at the end of September and to 60 basis points as of today. Our digital and operating model transformation continues to be a significant enhancement to customer experience and our financial profile. Customers benefit from having digital options at their fingertips across their entire journey.

<unk> different pressure points to bring a particular asset or a portfolio to the market. So we have seen the migration.

And the and the realization that the environment has clearly changed as I mentioned, we are anticipating very low levels of trading volume between today and the end of the year, which is somewhat unusual particularly for the fourth quarter.

But you know what we've been seeing with the iterative discussions with many entities is the realization that things have changed quite a bit and our own underwriting we have put different hurdles in place relative to those facts, which we should sell.

Our own cost of capital has changed and we are.

Again seeing a.

A difference in bid to ask but I will tell you that gap depending on the situation of a particular owner is shifting and we hope that two puts us in very good shape to actually transact.

Joe Ross-Lonton Boyle: Party. Our proprietary digital ecosystem is a compelling reason to choose us, with over 60% of our customers running through our online leasing platform, and today we have more than 1.4 million PS app users. And our financial profile benefits as well. We are putting these digital tools in the hands of our customers and employees for convenience combined with in-person, onsite customer service when and where it is needed. The result is a better customer experience and enhanced margins, particularly in regard to labor efficiencies.

In a different environment and very uniquely as I mentioned, we can do this unlike most others. So the capital.

That we have available the balance sheet, our ability to transact very quickly is serving us well and we're going to continue to exercise that opportunity as we see fit relative to the types of hurdles, we hope to achieve through this very different trading environment.

Okay, and maybe just to clarify a few numbers that.

The Tom throughout just when you talked about move in rents down 18% just to be clear you're talking about move in rents in Q4 versus move in rents.

In the year ago period, and if that is true.

Joe Ross-Lonton Boyle: We are also growing our portfolio amidst broader market dislocation. Our industry leading NOI margins, multi-factor in-house operating platform, access and cost the capital and growth-oriented balance sheet put us in a very unique position. So far this year we have acquired more than $2.6 billion worth of properties, including the 2.2 billion simply self-storage portfolio comprising 127 properties. As is our regular practice, every property was fully integrated into the public storage platform on day one.

How I guess I'm just trying to look at what is the spread between the move in rents and the move out rents because I think that widened out a bit in Q3 and I'm. Just curious what your expectations are for Q4, and maybe moving into the first half of 'twenty four.

Yeah. Good question Steve.

Verification. So yeah I was speaking to a year over year metrics. There and then the second component of your question about the difference between move in and move out rates I think in.

In the third quarter that differential was about 26%.

And.

As we've talked about in the past, we don't manage to that number specifically right. So we talk about our existing tenant rate increase program.

Joe Ross-Lonton Boyle: And we welcomed over 250 new associates and approximately 90,000 customers. We are also ahead of schedule on re-imaging the entire portfolio to public storage to ensure the maximum benefit from our industry leading brand. We will have also delivered $375 million in development by year-end and have a pipeline of nearly $1 billion of development to be delivered over the next two years. Since we updated you last quarter, the sharp move and interest rates has backed up the acquisition market with fewer deals likely to trade by year-end, typically a busy time of year for asset clothing.

Driven by our predictive analytics on individual customers and units and understanding the expected sensitivity of that customer over time.

And how we can influence that.

And on the flip side right, we are dynamically managing rental rates and so we were trying to attract customers and maximize revenue through a combination of rental rate and move in volumes and so what spits out of that more dynamic.

At the local level.

Management is that differential in gap and again that gap suggests that we're earning good revenue on the existing tenant base that continues to perform quite well.

To your question around how do we think about that gap today clearly it's in a range that we've operated in in the past I think the first quarter that gap was about 24, 25% so not dissimilar to where we are now.

Joe Ross-Lonton Boyle: We are actively engaged with a full range of owners that give us confidence that some sellers' expectations will adjust as the costs of capital has clearly increased. Our advantages enable us to acquire and develop when others can't. We have a strong appetite to grow our portfolio as seller expectations continue to correct and we have a matching ability to execute.

And as you're suggesting as we move through the fourth quarter and into the first quarter again.

Based on the assumptions around move in rents.

We're likely to see that gap increase a little bit more and that's something we're comfortable.

Comfortable operating in.

Tom: Now I'll turn the call over to Tom. Thanks Joe. We reported core FFO of $4.33 per share for the third quarter. Representing 5.6% growth year-over-year excluding the contribution from PS business parts. Looking at the key components for the quarter, same-store revenues increased 2.5%. As Joe mentioned, move and rental rates continue to be lower for us in the industry but we're seeing strong move and volume along with the right mix of marketing spend and promotions.

Great. Thanks for the answers.

Thank you.

Our next question comes from Spenser Alloway with Green Street Advisors. Please proceed with your question.

Thank you I apologize if I missed this but are you guys able to provide some color on cap rates as it relates to three key acquisitions and the acquisitions that you are under contract or has completed so far in <unk>.

So maybe a little perspective on how cap rates are trending Spencer and then you know deal by deal there's likely to be a range in the actual cap rate depending on the asset itself of the portfolio from a stabilization standpoint et cetera, but if you kind of step back and look to where the.

Tom: Our existing customer base continues to perform well with move out volumes further moderating this quarter. These trends largely continue to October with the year-over-year occupancy gap narrowing to 60 basis points as of today's Joe Man. On expenses, same-store cost of operations were up 2.8% leading to 2.4% stabilized same-store NOI growth at an industry-leading operating margin of 80%. Our largest market, Los Angeles continues to lead our portfolio. The 214 properties in the same-store pool grew NOI by 6% on steady demand and limited new supply facilities.

The environment was going back to 2021, you know we were in a range of plus.

4% or so on a cap rate basis shifted up into 2022 to five this year I would say, we're at a six handle trending to potentially to a seven so.

Reflective of the changing cost of capital.

Steve's question about this gap from a seller expectation standpoint.

Tom: In addition to the same-store, the lease-up and performance of recently acquired and developed facilities continues to be a standout, with NOI increasing nearly 20% year-over-year in the quarter. This pool of 685 properties and more than 60 million square feet comprises nearly 30% of our total portfolio today, and is a strong contributor to FFO growth today and into the future.

It does take a little bit of time from a realization standpoint, but we do see that trend continuing and we're using that as an opportunity to continue to find appropriately priced assets to bring into the portfolio and as I mentioned, we've got a number of different.

Situations playing through that we're confident at some point will likely trade. It just takes some period of time, depending on the pressure points on the timing of a particular seller.

Tom: Shifting toward the outlook, we sit here in October, raising our core FFO range once again, increasing both the low and high ends to $16.60 at the low end to $16.85 at the high end. Last but not least, our capital and liquidity position remain rock solid. We are well positioned with a strong appetite for growth coupled with the ability to execute in a dynamic capital markets environment.

Okay. That's very helpful. Thank you and then I think I want to provide any update if there is any on the integration of your new tenant insurance platform.

Sure. So I think you're speaking to are savvy program, So we announced.

That would be.

We would be launching that program here in next month in November.

Its initiative, where we're launching the industry to offer our tenant insurance program to other operators. This really came out of our third party management business in dialogue with some of the operators.

Operator: Rob, would that let's please open it up to Q&A. Thank you. We will now be conducting a question and answer session. If you'd like to ask a question, please press star 1 on your telephone keypad. A confirmation to all indicate your line is in the question queue. You may press star 2 if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions.

They've continued to like to operate the portfolios themselves and our dialogue, but they've said, hey, but what about that tenant insurance piece can we talk about that on a standalone basis.

And they were intrigued by that.

As you know we share a portion of the premiums that we collect on our third party managed properties with the owners of those of those facilities.

So we've been working to streamline and simplify our tenant insurance process, including making it easy to use digitally something our customers have embraced over the past couple of years and we think the industry can can benefit from so in that press release, we noted that we've been working with storable, which is the largest software provider in the industry to be able to offer that same experience.

Michael Goldsmith: My first question comes from Michael Goldsmith with UBS. Please proceed with your question. Good afternoon. Thanks a lot for taking my question. You continue to navigate the environment well, though the guidance implies continued deceleration to the fourth quarter for seems to revenue growth and seems to run a wide growth with both turning negative at the midpoint. So what are you seeing in October to this point and how are you viewing how the last two months of the year will play out?

Their property management software and we're going to be launching that starting here in November.

In terms of the opportunity. It's obviously very early days, we're launching it next month.

But the addressable market frankly could be larger than third party management.

For those that are interested in a different tenant insurance component, but just getting started there.

Michael Goldsmith: Yeah, thanks Michael. Good question. So I'll provide a little bit of context on the same store revenue outlook for the remainder of the year and specifically speak to October. So as we've spoken to and the prepared remarks the environment for new movements continues to be competitive and that's persisted through the second half as we sit here in October. We in the industry are responding with lower rental rates, promotions as well as advertising.

And I would say stepping back it's just another way for us to create a win win with other owners in the industry and build relationships that could bear fruit in a multitude of different ways over time.

Okay, great. Thank you guys.

Thank you. Thank you.

Our next question is from one Santa breakout with BMO capital markets. Please proceed with your question.

Hi, Good morning, just hoping to follow up on a prior point on the ECR commentary so.

Michael Goldsmith: But on the flip side, we're seeing good move in volume growth. Those tenants are staying longer than last year and our existing tenant base has been strong. We look at the exit rates for move in rates and occupancy to give you a sense what's assumed in our outlook. On move in rates, we assume that at the midpoint moving rents are down circa 18% at the midpoint. The high end of our outlook assumes 13 percent decline year-over-year and the low-end 22 percent.

Has the quantum and door pay.

Pace of increases that Youre looking to pass through to existing customers moderated throughout this year and do you expect.

And if not do you expect that to happen in 'twenty four at some point if the current environment continues into next year.

Yeah, well, it's moderated throughout the year is that cost to replace component has gotten more costly right I mean stepping back.

A couple of years ago right, we're in an environment, where in many markets, we had a benefit to replace which is pretty unusual.

Michael Goldsmith: On the occupancy side, the midpoint assumes that we hold the year-over-year decline from September at about 120 basis points decline year-over-year. At the high end of the range, we nearly closed the gap to last year by the end of December and obviously at the low end, we go backwards on occupancy towards the end of the year. Speaking specifically to October, we've seen, again, good volumes, but at lower rates. As we look at the move-in rental rate decline on an apple to apple's basis, move-in rents down, call it 18 percent in October to date, obviously today will wrap up the month.

In the sector and now we're back to a point in time, where theres a cost to replace and so as we move through this year.

And frankly, as we moved through last year or two the cost to replace grew and so on a year over year basis. The contributions from existing customer rate increases has declined modestly year over year.

The flip side of that is the new move in volume.

We've been getting really over the last year.

Is supportive right because the more tenants that are coming in we will receive those increases over time, and so that will benefit <unk>.

23 back half as well as 2024 given.

Michael Goldsmith: We and others ran some fall and Halloween sales on select units in the back half that will cause a little bit of decline in that towards the back half of the month, but overall seeing very good volumes. Volume's up nearly 9 percent in the month of October, so the tools that Joe Highlight continued to work very well and I would point again to existing customers performing well. Move-outs were down or actually are down year-over-year this month to date and the occupancy gap as Joe Highlight has improved to down about 60 basis points today, so we're seeing good customer traffic and existing tenant performance.

Given the significant volumes of moving activity we've seen.

And then I was just hoping you could spend a couple minutes on Los Angeles I know you had some benefits starting last year as the.

Rental restrictions rolled off where are we in that is that done and any benefit that is going to wear off as we kind of roll the calendar forward a year.

Yes, sure one yes.

Yes, just to step back.

As you know Los Angeles is our largest market, we've got 229 properties.

Michael Goldsmith: Thanks for that. That's really helpful. My follow-up question is on the existing customer. You've talked about in the past, or the existing customer, how they respond is a function of price of sensitivity, or EC rise or a function of price of sensitivity and the replacement cost. Given the pressure on move-in rates, how do you think about their ECRI philosophy, heading into the back half of the year, or heading into through the fourth quarter, just given what you've seen from the customer, and then separately as a follow-up to the first part, is there any change in your guidance philosophy?

Here in the L a basin.

Another 26 properties in San Diego, but as a full southern California portfolio L. A in particular, we're beyond.

The correction or the opportunity that was at.

At hand based on the.

Price.

Constraints that we had for that three year period.

So the.

Level of performance Youre seeing now is truly indicative quality of the market and the strength of that size portfolio the location and the overall dynamics that we see here in southern California.

<unk> continued to provide which is again very very healthy levels of new customer activity very healthy levels of existing customer behavior in a market that again, we have a very outsized level of not only <unk>.

Michael Goldsmith: You've been able to hold your guidance pretty flat through the year, at least the high end of the guidance hasn't been raised as the low end has moved up and now you finally touched the high end, so any change in philosophy on the guidance as well. Thanks. Okay, that's a lot, Michael. Let's step through that. So on the existing customer rating increases, I would reiterate what we've been saying really all year, which is on the first component, which you highlighted, which is customer behavior, and our expectations for customer behavior continue to be met or exceeded, frankly, as we move through the year.

Presence, but a very strong portfolio, we've talked about this to some degree recently, but it's also a portfolio that we've touched holistically from our property of Tomorrow program. We've invested 80 plus million dollars in the assets to pull them into a very ideal position.

Relative to the curb appeal.

There are attributes that we've added through property of tomorrow enhancements et cetera. So all things considered the market's humming along quite well.

Michael Goldsmith: And so that's why the equation has been quite strong. There's been one of the drivers that's led to better performance through the year. And then the second component costs a replace, continues to get more challenging. So as we've highlighted throughout the year to date, that's led to lower magnitudes and lower frequencies of increase to customers. But no real change there in terms of talking points. The second component of your question related to guidance, and so we did lift the lower end as well as the higher end of our guidance range this quarter.

And we think we'll continue to see good activity and good performance going forward.

Just one last quick follow up if you don't mind, you mentioned the occupancy was down 60 basis points year over year at the end of October book, What's the absolute occupancy percentage, if you don't mind sharing that.

Yeah.

The occupancy percentages, we sit here today I'm not sure is directly relevant to what the period end occupancies are going to be obviously, where we're getting towards the end of the month.

Michael Goldsmith: And in February, we were pretty upfront and described the different pathways that we could take through the year. We've been encouraged by the pathways that we've ultimately executed upon and are towards the high end of that range. And again, lifted the high end this quarter. And I think I use some guide posts around the macro economy at that time as well to frame the outlook. And I think we're all somewhat pleasantly surprised by the macro economy and obviously a strong third quarter GDP print that further reinforces the performance towards the higher end of that original guidance range.

Today, we will be a move out day at many of our facilities. So I guess.

Suggest that not too dissimilar to where we were in September the occupancies are north of 93% today, but expect them to be in the 90 twos as we finish the business day up here.

Thank you.

Thank you.

Our next question is from Jeff Spector with Bank of America. Please proceed with your question.

Great. Thank you.

I, just I guess I wanted to ask about the market in general just thinking listening to your comments and thinking about.

Michael Goldsmith: And yeah, Michael, one thing just a little bit more context on existing customers. Again, we're all looking to the prints that Tom just mentioned. But you know, month by month, you know, through this year we've been quite and pleasantly surprised by the consistent behavior existing customers. We're not seeing any new or emerging stress coming through the economy continues to support our customer base quite well. We're not seeing, again, any level of additive stress tied to the liquidities et cetera.

Is there an equilibrium like some point, where I don't know if it's national occupancy something to alleviate the pressure on.

Michael Goldsmith: So, you know, continuing to see very, very consistent behavior from existing customers, which is very good for the business. And again, assuming the economy at large continues to do what it's doing, we think we're in very good shape, again, going through the rest of this quarter and then setting up for 2024.

New rates or do you not really care because your volumes are so strong like how are you thinking about that.

Michael Goldsmith: Thank you very much.

As you know, we're trying to forecast and think about the coming months and into 'twenty four.

Yeah, Jeff there's a there's a lot there I guess, what I'd say.

Suggest is.

If you think about this year right. We came into this year expecting that that move in environment would be more competitive and that was based on our outlook and what we were seeing no question housing, having a component of that with a record.

Last 20 year record high mortgage rates as Joe mentioned, that's led to a slowdown in demand. The flip side is we've seen good good activity from renters as we've highlighted but the move in environment has gotten more competitive rate or.

Steve Sakwa: Our next question comes from Steve Sakwa, with Evercore ISI. Please proceed with your question. Great, thanks. Maybe first just talking on the transaction market. It sounds like, you know, you're maybe starting to see some sellers capitulate. I'm just wondering Joe, how have you guys changed your underwriting criteria, you know, on the other revenue and a Y-grow side, IRR side, cap rates side, and how wide do you think the badass spread is today?

Our facilities in particular, if you rewind a couple of years were full and.

And frankly, we were turning customers away in 2021.

Because we were so full and we were pushing rate.

And so the combination of that dynamic and where we are now.

He has led to a correction and I think in terms of moving rents, maybe an overcorrection in certain markets, where the industry as a whole is reacting to an environment, where the larger operators are taking there.

Steve Sakwa: Yes, Steve. So again, a lot of moving parts there. And as you spoke to, we, you know, clearly need to be very conscientious of change in cost of capital. You know, one of the things that step by step, as I alluded to, with, you know, a very high degree of dialogue we're having with all different types of owners. The realization of, you know, a different trading market is starting to play through, you know, clearly, you know, some entities may have more pressure points, likely not tied to the actual performance of the asset or the portfolio, but maybe more particularly tied to any capital event that may be emerging again tied to the very different environment that an owner would go through to reset an existing capital structure.

Their typical move in volumes and the overall demand environment is a little softer than where it was maybe two years ago, but demand continues to be a.

Relatively healthy if you go back in time for self storage, it's just nowhere near what it was in 2021 and no question. That's led to declining move in rents and as we look at how our business has performed through this year that has been the one notable.

A component of the revenue algorithm that has under punched expectations I E. Moving rents had been lower than what we anticipated. The good thing is on the flip side.

Move in volumes to your point have been strong existing tenant behavior has been good move outs have moderated so obviously, leading to us increasing our outlook as we move through the year, but.

Steve Sakwa: And, you know, how to deal with that and or different pressure points to bring a particular asset or portfolio to the market. So we, you know, have seen, you know, the migration and the realization that the environment has clearly changed. As I mentioned, you know, we're anticipating very low levels of trading volume between today and the end of the year, which is somewhat unusual, particularly, you know, for the fourth quarter. But, you know, what we've been seeing with the iterative discussions with many entities is the realization that, you know, things have changed quite a bit in our own underwriting.

But I don't want to shy away from the fact that move in rents have been.

A particular soft spot as we move through the year.

Steve Sakwa: We have put different hurdles in place relative to those facts, which we should. But so our own cost capital has changed and we are again seeing, you know, a, you know, a difference in bid to ask, but I will tell you that gap, you know, depending on the situation of a particular owner is shifting. And we hope that too puts us in very good shape to actually transact in a different environment and very uniquely, as I mentioned, we can do this unlike most others.

And on top of that Jeff.

We need to be reflective of the three tools that we continue to speak to marketing promotions and rental rates.

Those are tools that are highly interrelated right down to a per property and per customer basis relative to the way that we can optimize the utility of each of those with the data that we have the amount of demand volume and knowledge that we have relative to any particular Trey.

Area.

More often than not we're typically competing with owners that have far few.

Tools of any depth and ore.

Our ability to judge and react to any of the dynamics that Tom just spoke to these frankly are tools that are deep seated we've used them in a whole variety of different.

Economic arenas clearly the last three years or so.

Most operators haven't had to rely on those tools very frequently.

Steve Sakwa: So the capital that we have available to balance sheet or ability to transact very quickly is serving as well. And we're going to continue to exercise that opportunity as we see fit relative to the types of hurdles we hope to achieve through this very different trading environment.

Good at using those tools and frankly, we've become better even over the <unk>.

Near term relative to our own utility of data the knowledge that we have and will continue to unlock relative to all the operational efficiencies as well. So we feel very encouraged that we are using those steel those tools to not only drive top of funnel demand but conversion.

Steve Sakwa: Okay. And maybe just to clarify a few numbers that Tom threw out, just when you talked about move and rents down 18% just to be clear, you're talking about move and rents in Q4 versus move and rents in the year ago period. And if that's true, how, I guess I'm just trying to look at what is the spread between the move in rent and the move out rent because I think that wide doubt a bit in Q3 and I'm just curious what your expectations are for Q4 and maybe moving into the first half of 24.

To the move in activity that we're reporting and we're going to continue to keep them very sharp and active.

Great. Thank you very helpful and just one question a clarification. Please on the 60 basis points year over year for occupancy.

Is that the end of period or the average if it was end of period can you state the average.

For the month of October.

While we started the month it at down 120 basis points, we're finishing.

Steve Sakwa: Yeah, good question, Steve, in clarification. So, yeah, I was speaking to a year-over-year metric there. And then the second component of your question about the difference between move-in and move-out rates. I think in the third quarter that differential was about 26%. And, you know, as we've talked about in the past, we don't manage that number specifically, right. So we talk about our existing rate increase program. Being driven by predictive analytics on individual customers and units, and understanding the expected sensitivity of that customer over time, and how we can influence that.

Down 60 basis points, so the averages right about in the middle mid point there.

Okay. Thank you.

Our next question comes from Todd Thomas with Keybanc Capital markets. Please proceed with your question.

Hi, Thanks first question I, just wanted to follow up on that the last question.

About move in rents.

Tom you talked about move in volumes being stronger than expected and it sounds like you've.

You've taken share from from other operators, Joe you mentioned in your prepared remarks that customers are choosing public storage more and more.

Steve Sakwa: And on the flip side, right, we're dynamically managing rental rates. And so, we're trying to attract customers and maximize revenue through a combination of rental rate and move-in volumes. And so what spits out of that more dynamic, you know, at the local level. Management is that differential in gap. And again, that gap suggests that we're earning good revenue on the existing kind of tenant base that continues to perform quite well. To your question around, how do we think about that gap today, clearly it's in a range that we've operated in in the past.

In this environment, a more competitive environment.

I guess really without sort of an.

An increase in overall demand.

Even if occupancy stabilizes in public storage is portfolio, which I think the high end of your guidance now assumes at year end do you foresee.

The ability for for move in rents to stabilize or begin to stabilize or will they continue to drift lower until overall industry occupancy.

Steve Sakwa: I think the first quarter that gap was about 24 or 25%. So not that similar to where we are now. And as you're suggesting, as we move through the fourth quarter and into the first quarter, again, based on the assumptions around move-in rents, we're likely to see that gap increase a little bit more. And that's something we're comfortable operating in.

Steve Sakwa: Great. Thanks for the answers. Thank you.

Really stabilizes and maybe find a bottom.

Yeah, I think that Theres, a number of factors at play and certainly as I noted.

We were in an environment, where moving rents you pick a market move in rents in Miami for instance were up significantly.

<unk> in the 2020 2021 'twenty two time period, and we're giving some of that that back and I think as an industry.

Spencer Alloway: Our next question comes from Spencer Alloway with green street advisors. Please proceed with your question. Thank you.

No question, that's playing through but as we think about the different components at play as we head into 'twenty four and 'twenty five.

Joe Ross-Lonton Boyle: Apologies if I missed this, but are you guys able to provide some color on the cap rates as it relates to the 3Q acquisitions and the acquisitions that you're under contract or have completed so far in 4Q? So maybe a little perspective on how cap rates are trending, Spencer, and then deal by deal, there's likely to be a range in the actual cap rate, depending on the asset itself or the portfolio from a stabilization standpoint, et cetera.

Housing has gotten a lot of airtime this year around its impacted demand no question Thats a component of demand.

And that's been softer if you look at existing home sales over time.

They've been in a range of call it $4 million to $7 million.

<unk> home sales per year.

We're trading right around that 4 million today, which if you go back and look at the financial crisis or other periods, where the housing market is has slowed down pretty consistent. So we've worked through that decline as we move through 2023.

Joe Ross-Lonton Boyle: But if you kind of step back and look to where the environment was going back to 2021, we were in a range of plus 4% or so on a cap rate basis, shifted up to 2022 to 5. This year, I would say we're at a six-handle trending potentially to a seven. So, again, reflective of the change in cost of capital, Steve's question about this gap from a seller expectation standpoint does take a little bit of time from a realization standpoint, but we do see that trend continuing.

And.

So that's helpful. As we think about the setup into 'twenty, four and 'twenty five and the fact that existing home sales are likely to take another significant leg lower.

But obviously, we'll see how that plays out.

The other side is renters and people that have run out of space in home.

Less movement and frankly, those are good storage customers and they tend to have longer length of stays in some instances in many instances.

Joe Ross-Lonton Boyle: And we're using that as an opportunity to continue to find appropriately priced assets to bring into the portfolio. And as I mentioned, we've got a number of different situations playing through that we're confident at some point will likely trade. It just takes some period of time, depending on the pressure points and the timing of a particular seller.

And so we've seen that benefit as we move through this year and longer length of stays for move ins this year.

And if you've been getting good customers, which again supports 24 and 25 supports occupancy I think for the industry overall.

Spencer Alloway: Okay, that's very helpful. Thank you.

So those are all helpful. As we move into 'twenty, four and 'twenty, five and I'd add to that the fact that the development environment continues to be quite challenging construction costs are up over the last several years city processes continue to be challenging with understaffing and delays.

Unknown Executive: And then are you guys able to provide any update if there is any on the integration of your new tenant insurance platform? Sure. So I think you're speaking to our Svavi program.

And no question cost of capital in the construction lending environment is going to lead to lower levels of deliveries as we go into 'twenty four and 'twenty five all of those things are helpful. As we think about stabilizing rental rates in some of the markets that maybe I, even characterize maybe over correcting in some instances.

Unknown Executive: So we announced that we would be launching that program here in next month in November. And it's an issue that we're launching the industry to offer our tenant insurance program to other operators. This really came out of our third-party management business in dialogue with some of the operators. They've continued to like to operate the portfolios themselves in our dialogue, but they've said, hey, but what about that tenant insurance piece? Can we talk about that on a standalone basis?

I also think getting into the busy season next year will be quite helpful. Right. We go into a time period in the spring where seasonally you're going to see more demand. This year, we didn't have much of a season.

Partially attributable to the housing environment. So the comps from a seasonal standpoint next year are a little easier.

Unknown Executive: And they were intrigued by that. As you know, we share a portion of the premiums that we collect on our third-party managed properties with the owners of those of those facilities. So we've been working to streamline and simplify our tenant insurance process, including making it easy to use digitally, something our customers have embraced over the past couple of years, and we think the industry can benefit from. So in that press release, we noted that we've been working with Storeable, which is the largest software provider in the industry to be able to offer that same experience on their property management software.

And we'll have to see that benefit.

Of what plays through in 'twenty, four two to the dynamics with move and rental rates heading into March April and May of next year.

Okay.

Helpful. And then my other question is around the.

The development and expansion pipeline.

Which decreased a little bit in the quarter versus last quarter I realize it's.

Just one quarter and not necessarily a trend but.

The environment is more challenging today and I'm just curious if.

Unknown Executive: And we're going to be launching that starting here in November. In terms of the opportunity, it's obviously very early days we're launching it next month, but the addressable market, frankly, could be larger than third-party management for those that are interested in a different tenant insurance component, but just getting started there. And I'd say stepping back, it's just another way for us to create a win-win with other owners in the industry and build relationships that could bear fruit in a multitude of different ways over time.

That is intentional at all as you look for either rents to stabilize or greater certainty around lease up or if it's just timing related.

Unknown Executive: Okay, great.

But really just wondering if your return requirements may be to start new projects have really changed at all in the current environment.

So yeah to again give full perspective on the focus on the priority we continue to put into our development and redevelopment capabilities. It continues to be our most vibrant opportunity from a return on invested capital standpoint. So we think that you know.

Unknown Executive: Thank you guys.

Unknown Executive: Thank you.

Ironically or Counterintuitively. This is actually even a better environment for us to source and.

Juan Santa Brea: Our next question is from Juan Santa Brea with BMO Capital Markets. Please proceed with your question.

Juan Santa Brea: Good morning. I'm just hoping to follow up on a prior point on the ECI commentary. So it has the quantum and or pace of increases that you're looking to pass through to existing customers moderated throughout this year. And do you expect, and if not, do you expect that to happen in 24 at some point? Is the current environment continues into next year? Yeah, I want to, it's moderated throughout the year is that costs to replace component has gotten more costly, right?

Compete for a land sites and be work certain properties through entitlement and development processes, where others are retrenching.

Lending environment, particularly tied to construction loans continues to be much more.

Constrained.

In fact with the pressure into regional banks, where most of the construction lending goes on particularly tied to.

One off construction loans for self storage again, very very tough hurdles for any developer to meet very differently than we've seen over the last several years. This continues to be a good opportunity for us to compete very differently and ideally look for expansion opportunities for the <unk>.

Juan Santa Brea: I mean, stepping back a couple years ago, we're in an environment where in many markets, we had a benefit to replace, which is pretty unusual in the sector. And now we're back to a point in time where there's a cost to replace. And so as we move through this year, and frankly, as we moved through last year too, the cost to replace grew. And so on a year over a year basis, the contributions from existing customer rate increases has declined modestly year over year.

Portfolio as a whole.

The slight reduction Todd to your point was just that was just a one off quarter impact from some deliveries that took place but the team's working very hard to continue to not only operate in an environment, where some of the hurdles are being adjusted but developments a long game as well.

Juan Santa Brea: The flip side of that is that the new move in volume that we've been getting really over the last year is supportive, right? Because the more tenants that are coming in will receive those increases over time. And so that will benefit the 2023 back half as well as 2024, given the significant volumes of moving activity we've seen.

Dealing with multi year processes, not only to get a particular asset approved and launched from a construction standpoint, but then a number of years beyond that to get them stabilized. So in this environment, particularly you've got to have very strong fortitude to get through those time frames, particularly with cost of capital being very different.

Joe Ross-Lonton Boyle: And then I was just hoping you could spend a couple minutes on Los Angeles. I know you had some benefits done last year, the rental restrictions rolled off. Where are we in that? Is that done and any benefit that is going to wear off as we kind of rolled a calendar forward a year? Yeah, sure one. Yeah, just a step back. As you know, Los Angeles is our largest market. We've got 229 properties here in the LA basin, another 26 properties in San Diego, but as a full southern California portfolio, LA in particular, we're beyond the correction or the opportunity that was at hand based on the price constraints that we had for that three year period.

But we look at this as an ideal opportunity for us to continue to leverage the skills, the strong balance sheet and our knowledge market to market. The teams well seeded nationally we continue to find new and different opportunities region by region across the country and we're going to continue to work hard to not only a lot of ground up.

Development, but redevelopment activity as well so it continues to be a very vibrant part of the business that we're going to continue to focus on very strongly.

Thank you.

Thank you.

Our next question comes from Smedes Rose with Citi. Please proceed with your question.

Hi, Thanks, I just wanted to follow up you mentioned expectations of lower deliveries deliveries I think industry wide in 'twenty four 'twenty. Five is there can you just quantify that a little more in terms of either dollars investments youre seeing in the states or a percent increase in existing supply and are there any markets where you see.

Joe Ross-Lonton Boyle: So the level of performance you're seeing now is truly indicative quality of the market and the strength that that size portfolio, the location and the overall dynamics that we see here in southern California continue to provide, which is again, very, very healthy levels of new customer activity, very healthy levels of existing customer behavior in a market that, again, we have a very outsized level of not only presence, but you know, a very strong portfolio. We've talked about this, you know, to some degree recently, but you know, it's also a portfolio that we've touched holistically from our property of tomorrow program.

Outsized growth coming up for one reason or another or anywhere it looks particularly favorable meaning like very little growth.

Yes, Smedes a lot of moving parts, there, but step by step and we've been speaking of this for some time, we've been seeing the unusually difficult hurdles you go through to get projects a approved and then be.

Funded it now again with the constraints I just spoke to in the lending environment.

Getting them into production themselves so.

Statistically we think most of the information out there is not accurate because it's not reflective of the continued deceleration in annual deliveries.

Joe Ross-Lonton Boyle: We've invested, you know, 80 plus million dollars in the assets to pull them into, you know, a very ideal position relative to curb appeal, other attributes that we've added through property of tomorrow, enhancements, et cetera. So all things considered, the market's humming along quite well. And we think we'll continue to see good activity and good performance going forward.

From a step by step basis going from this year to 24 and likely in the 25, we think that the.

The pool of assets that had been predicted to deliver are probably shrinking by plus or minus at least 10% or more on a per annum basis.

We had kind of ratcheted down to a delivery level nationally plus or minus $3 billion or so of assets.

Joe Ross-Lonton Boyle: Just one last quick follow-up if you don't mind. You mentioned occupancy was down 60 basis points earlier at the end of October, but what's the absolute occupancy percentage if you don't mind sharing that? The occupancy percentage as we sit here today, I'm not sure is directly relevant to what the period and occupancies are going to be. Obviously, we're getting towards the end of the month. Today will be a move out day at many of our facilities.

You know in the 2022 to 2023 time frame and that's going to continue to notch down in our view based on all the constraints that I just spoke to it's a very good thing for the industry as a whole.

Can't really point to any.

Number of markets at the moment, our overburden from a delivery standpoint outside of potentially Las Vegas, Phoenix to a degree Portland's starting to work through it but.

Joe Ross-Lonton Boyle: So I guess I suggest that not too dissimilar to where we were in September. You know, the occupancies are north of 93% today, but expect them to be in the 92s as we finish the business day up here. Thank you.

A little bit of an outstretched level of new deliver.

Deliveries in that market as well, but frankly.

The good news is the amount of deliveries that have had have come to the market over the last couple of years has been slower and it's likely to continue to get <unk>.

Jeff Specter: Our next question is from Jeff Specter with Bank of America. Please proceed with your question. Great. Thank you. I guess I wanted to ask about the market in general, just listening to your comments and thinking about, you know, is there an equilibrium, like some point where I know if it's national occupancy, something to alleviate the pressure on new rates, or do you not really care because your volumes are so strong? Like, how are you thinking about that as, you know, we're trying to forecast and think about the coming months and into 24?

Slower from a volume standpoint going into next couple of years.

Great. Thank you and then I just wanted to ask you you mentioned that I think in the past that renters tend to have a longer length of stay.

So are you seeing that in the portfolio now could you just talk a little bit more about.

Length of stay is in the change and so you might be seeing.

Yes in terms of length of stay overall continues to be quite strong. So we've spoken a lot over the last couple of years in terms of how that's extended from call. It 32 33 months on average if you take a snapshot of all of our tenants in place pre pandemic to more like $35 36 and that person.

Jeff Specter: Joseph, there's a lot there, I guess what I suggest is if you think about this year, we came into this year expecting that the movement environment would be more competitive and that was based in our outlook and what we were seeing, no question housing having a component of that with last 20 year record high, mortgage rates as Joe mentioned, that's led to a slowdown of demand, the flip side as we've seen good activity from renters as we've highlighted, but the movement environment has gotten more competitive, right? Our facilities in particular if you rewind a couple of years, we're full and frankly we were turning customers away in 2021 because we were so full and we were pushing rate and so the combination of that dynamic and where we are now is led to a correction and I think in terms of move and rents maybe an over correction in certain markets where the industry as a whole is reacting to an environment where the larger operators are taking their typical move and volumes and the overall demand environment is a little softer than where it was maybe two years ago, but demand continues to be relatively healthy if you go back in time for self-storage, it's just nowhere near what it was in 2021 and no question that's led to declining move and rents and as we look at how our businesses performed through this year that has been the one notable component of the revenue algorithm that has underpunched expectations i.e, move and rent have been lower than what we anticipated.

<unk> today and that is persisting in an environment, where obviously, adding more new tenants, which brings that average down.

So continue to see strong strong trends there customers that have been with us for longer than than two years continues to punch well above where we were pre pandemic in the <unk> as a percentage of the total tenant base and that continues to be the most most stable.

An important component of the tenant base.

Thank you.

Our next question comes from Eric Loop Chau with Wells Fargo. Please proceed with your question.

I appreciate the question guys.

Wanted to go back to the Cri discussion from earlier I think you talked about higher cost of replaces somewhat moderated your ability to push through <unk> to some degree but does that dynamic shift at all given your loading more new customers now at lower rates can.

Can you push ECR is harder and faster with this cohort given the cost to replace presumably for them is slightly lower than your in place customer.

Yes, that's spot on Eric So as we talk about the tenant base overall rate the cost to replace has gone higher but those new tenants that have moved into this year, but I don't have that same dynamic.

More like customers in prior years with a lower cost to replace and are likely to receive higher magnitude and frequency of the increases which as supportive as we move.

More customers in through 2023 into 'twenty, four and 'twenty five.

Okay, Great and then just one last one.

Maybe you could touch on the cost side, you've seen marketing expenses payroll utilities.

Jeff Specter: The good thing is on the flip side, move in volumes to your point have been strong, existing tenant behavior has been good, move outs have moderated, so obviously leading to us increasing our outlooks and move through the year, but I don't want to shy away from the fact that move and rents have been a particular soft spot as we move through the year. And yeah on top of that, Jeff, you know, again need to be reflective of the three tools that we continue to speak to, marketing promotions and rental rates.

To increase, especially with an uncertain demand backdrop into next year, how maybe you could talk about how effectively you will be able to manage your cost and any cost line items that we should be aware of that.

I'll be pressure points in your NOI growth outlook for next year.

Yeah, So I guess, starting with marketing marketing is the one that this quarter was up most notably we continue to get very good returns on the marketing spend that we're utilizing and that is.

Jeff Specter: Those are tools that are highly interrelated right down to a per property and per customer basis relative to the way that we can optimize the utility of each of those with the data that we have the amount of demand, volume and knowledge that we have relative to any particular trade area. You know, more often than not, we're typically competing with owners that have far few tools of any depth and or ability to judge and react to any of the dynamics that Tom just spoke to.

A process that we manage dynamically at the local level in conjunction with promotions and rental rates as Joe highlighted earlier.

If you look at marketing spend over time.

We've historically been in a range of say one 3% of revenue spent on marketing, we got all the way down to 1% or so in 2021.

And I think this quarter, we sat at right around 2% two 1%. So there's continues to be a room at least up from a historical lens for us to continue to increase that and see good return associated with that.

Jeff Specter: These frankly are tools that are deep seated. We've used them in a whole variety of different economic arenas. Clearly the last three years or so, you know, most operators haven't had to rely on those tools very frequently. We're very good at using those tools and frankly we've become better even over, you know, the, you know, the near term relative to our own utility of data, the knowledge that we have and what will continue to unlock relative to all the operational efficiencies as well.

And we will do that I would think about.

Marketing spend on the expense line items certainly will create.

Higher levels of expense growth, but that's going to be an NOI positive investment given the returns we're seeing.

The other line items utilities as well as property payroll continue the areas that are strategic initiatives that we outlined at Investor day continue to bear fruit. So as we close 2023, we will.

Jeff Specter: So we feel very encouraged that, you know, we're using those tools to not only drive top of funnel demand but conversion, you know, to the move and activity that we're reporting and we're going to continue to keep them very sharp and active. Great. Thank you. Very helpful. And just one question, a clarification, please, on the 60 basis points you're over a year for occupancy, was that the end of period or the average if it was end of period, can you state the average? For the month of October, while we started the month at down 120 basis points, we're finishing up down 60 basis points. So the average is right about in the middle, midpoint there. Okay, thank you.

I mean, our 25%.

Payroll hour reduction that we highlighted at Investor day that has helped to offset as we've gone through.

Initiatives around technology, as well as specialization and centralization of a property rolls that are leading to career advancement opportunities and as well as good efficiencies and good customer experience. So that's one side that will continue through 2024 to benefit us and the other is our solar power programs.

<unk>.

We'd like to put solar on over a thousand roofs.

And today, we're sitting with solar will finish the year with around 500 of those are complete and we think theres more more to go there, which will help offset utility pressure.

Joe Ross-Lonton Boyle: Our next question comes from Todd Thomas with Keybank Capital Markets. Please proceed with your question. Hi, thanks. First question, I just wanted to follow up on that the last question about moving rents. You know, Tom, you talked about moving volumes being stronger than expected. And the same thing. Sounds like you've, you know, you've taken share from from other operators. Joe, you mentioned, then you're prepared remarks, the customers are choosing public storage more and more.

In addition to that.

Be good for the environment and our carbon emissions.

Alright. Thank you guys appreciate it.

Thanks, Eric.

Our next question is from Kagan Karl with Wolfe Research. Please proceed with your question.

Yes, so I hate to belabor the point on ECR, either maybe just on <unk> in particular.

When do you guys typically stop sending rates for the year and does the current operating environment changed that plan at all versus historical levels.

No as I noted the existing customer base continues to perform as expected and frankly very stable versus the prior.

Joe Ross-Lonton Boyle: In this environment, a more competitive environment, I guess really, you know, without sort of an increase in an overall demand, even if occupancy stabilizes in public storages portfolio, which, you know, I think the, the high end of your, your guidance. Now, assumes that you're in.

Several years, which is encouraging so our program continues its part of how we manage revenues.

And that's that's not going to change won't change in the fourth quarter and don't anticipate it to change into 'twenty four.

Joe Ross-Lonton Boyle: Do you foresee, you know, the ability for for moving rents to stabilize or begin to stabilize, or will they continue to drift lower until overall industry occupancy really stabilizes and maybe find to bottom? Yeah, I think that there's a number of factors to play, and certainly as I noted, you know, we were in an environment where moving rents, you know, you pick a market moving rents in Miami, for instance, we're up significantly in the 2020, 2021, 2022 time period.

Barring any any significant shocker change.

So that's continues to be a strong point.

As it relates to the overall customer base and I wouldn't point to anything significant there.

I guess just to clarify, though youre comfortable sending increases throughout the entire year.

Youre not going to stop around the holidays I thought that was a trend that's typically present in storage.

No we send increases throughout the year.

Okay.

And then just shifting gears here. So you guys. Obviously over earned on your interest income in the quarter just given the held onto cash prior to closing on simply just curious what a good run rate for this would be going forward.

Joe Ross-Lonton Boyle: And we're giving some of that back. And I think as an industry, no question that's playing through. But as we think about the different components at play as we head into 24 and 25, you know, the housing has gotten a lot of air time this year around its impacted demand, no question that's a component of demand. And that's been softer. If you look at existing home sales over time, they've been in a range of call it four to seven million existing home sales per year.

Yes, that's a good question so.

As as everyone's aware, we announced the simply transaction.

On Monday in July we did the financing associated with that transaction on the same day.

Which was meant to match fund both the acquisition as well as the financing associated with it in hindsight that looks pretty good because interest rates are up over 100 basis points since that time period.

Joe Ross-Lonton Boyle: We're trading right around that four million today, which if you go back and look at the financial crisis or other periods where the housing market has slowed down, pretty consistent. And so we work through that decline as we move through 2023. And so that that's helpful as we think about the setup into 24 and 25 and the fact that existing home sales aren't likely to take another significant like lower. But obviously, we'll see how that plays out.

But the other benefit was obviously sat on that cash for a period of time and believe it or not we actually we eked out a positive spread on that cash versus our financing costs, given where we can earn on cash about three basis points. So nothing to write home about but it certainly led to both higher.

Interest income for the quarter as well as higher interest expense, because we were sitting on that cash and we had raised it for a period of time, so no real impact to <unk>, but certainly.

Joe Ross-Lonton Boyle: The other side is renters and people that run out of space and home, you know, there's less movement. And frankly, those are good storage customers and they tend to have longer length of stays in some instances and many instances. And so we've seen that benefit as we move through this year, longer length of stays for movements this year. And have been getting good customers, which again supports 24 and 25 supports occupancy, I think for the industry overall.

Drove incremental and then if you think about that.

That interest and other income line right just doing some simple math $2 2 billion in cash and sitting on it earning a little over 5%.

I think we can get the numbers for 50 days of about $15 million benefit during the quarter. So you can think about that is not recurring we won't be sitting on that $2 2 billion of cash in the fourth quarter.

Joe Ross-Lonton Boyle: So those are all helpful as we move into 24 and 25. And I'd add to that the fact that the development environment continues to be quite challenging. Construction costs are up over the last several years, city processes continue to be challenging with understaffing and delays and no question cost of capital in the construction lending environment is going to lead to lower levels of deliveries as we go into 24 and 25. All of those things are helping to be helpful as we think about stabilizing rental rates of some of the markets that maybe I even characterize as maybe overcorrecting in some instances.

Got it thanks for the time, guys and happy Halloween.

Thanks Kian, Thank you happy Halloween.

Our next question comes from Ron Ron Camden with Morgan Stanley. Please proceed with your question.

Hey, just two quick ones.

I think you guys were one of the first this year to talk about the potential with same store revenue to go negative and obviously in the guidance for <unk> implies that it does that.

And I think we could sort of use your wisdom as we're thinking about sort of next year. If I go back to that move in move out spread down 26% and three Q.

Joe Ross-Lonton Boyle: I also think getting into the busy season next year will be quite helpful right we go into the time period in the spring where seasonally you're going to see more demand. This year we didn't have much of a season partially attributable to the housing environment so the comps from a seasonal standpoint next year are a little easier and we'll have to see the benefit of what plays through in 24 to the dynamics with moving rental rates heading into March April and May of next year.

It's got a little bit worse, it sort of suggests that things are still sort of decelerating. So the question really is.

As we're thinking about next year is it occupancy.

Bonds is that length of say like.

What sort of factors should be should we be watching to get a sense of the direction of the same store trend enter into next year.

Well, Ron I think Theres, a few things there that I'll pick out and comment on one is certainly we started 2023 at a point of particular strength in our rents were significantly higher I've commented on some of the positives or negatives that have played through this year, but no question.

Joe Ross-Lonton Boyle: Okay, that's helpful and then my other question is around the development and expansion pipeline, which decreased a little bit in the quarter versus last quarter. I realize it's just one quarter not necessarily a trend but the environment is more challenging today. I'm just curious if that is intentional at all as you look for either rent to stabilize or greater certainty around lease up or if it's just timing related but really just wondering if your return requirements maybe to start new projects have really changed it all in the current environment.

Growth rates have moderated through the year commented on move in rates in particular have been softer than expected and I think that's certainly the case as we move through the third and the fourth quarter here.

Going into 2024, and I'm not going to speak to specifics, but one of the things that we spent a good bit of time on earlier in the year.

Talking about this year was that comps ease in the second half because the environment started to change last year and I would suggest that that's not just the second half of 2023 thing. It's also into 2024 as we worked through.

Joe Ross-Lonton Boyle: So yeah to again give full perspective on the focus and the priority we continue to put into our development and redevelopment capabilities. It continues to be our most vibrant opportunity from a return on to invest in capital standpoint. So we think that ironically or counterintuitively this is actually even a better environment for us to source and compete for a land sites and be work certain properties through entitlement development processes where others are retrenching.

The demand environment that softened through 2023 as well as move in rents that declined through 2023.

And so for the same reasons that we discussed.

Moderation in deceleration or easy comps in the second half of 2023, maybe we haven't seen that as much as we initially.

Envision, but we've also seen.

Joe Ross-Lonton Boyle: The lending environment particularly tied to construction loans continues to be much more constrained. In fact with the pressure into regional banks where most of the construction lending goes on particularly tied to one off construction loans for self storage, again very very tough hurdles for any developer to meet very differently than we've seen over the last several years. This continues to be a good opportunity for us to compete very differently and ideally look for expansion opportunities for the portfolio as a whole.

The levels of performance of the existing tenants make up some of that rental rate comp dynamic.

But we're still to your point looking at negative same store revenue growth at the midpoint in the fourth quarter to your point, we were highlighting that in February.

Our outlook for the fourth quarter has gotten better as we move through the year.

I think the midpoint now is down 50 basis points and same store revenue.

So.

Almost there at flat, which is frankly, an improvement from where we were sitting starting the year end.

And to your point on 2024, I think I've, probably said as much as they should and will be providing a good bit more detail in February on the assumptions and fresh guidance for for the year.

Joe Ross-Lonton Boyle: The slight reduction tied to your point was just a one off quarter impact from some deliveries that took place but the team is working very hard to continue to not only operate an environment where some of the hurdles are being adjusted. But you know development the long game as well, you know we're dealing with multi-year processes not only to get a particular asset approved and launched from a construction standpoint but then you know a number of years beyond that to get them stabilized.

Great and then my second question was just going back to the supply.

Question, but instead of just like the the macro forecasts.

Guys have a sense of how much of the portfolio is actually competing directly with new supply high level is it a quarter or is it is it half just trying to get a sense of the range of the actual asset sort of competing with new supply.

Joe Ross-Lonton Boyle: So in this environment particularly you've got to have very strong fortitude to get through those time frames particularly with cost of capital being very different. But we look at this as an ideal opportunity for us to continue to leverage the skills, the strong balance sheet and our knowledge market to market. The teams well seated nationally we continue to find new and different opportunities region by region across the country and we're going to continue to work hard to not only a lot ground up development but redevelopment activity as well. So it continues to be a very vibrant part of the business that we're going to continue to focus on very strong.

Yeah, that's going to vary Ron market to market, there's a whole spectrum.

As I mentioned, our largest market.

Smedes Rose: Thank you.

Being here in southern California, almost no new supply to speak to.

Other parts of the country that are.

Well known to be the tougher markets to develop into have seem in similar dynamics.

I mentioned on the other end of the spectrum, we're keeping a close eye on the amount of deliveries that are playing through in Phoenix and Las Vegas.

But frankly, it goes right down to a very sub market impact and I would say, it's it's it's.

Less than and continuing to shrink below the the lower number you pointed to I E, whether it's 20% or lower it's it's definitely a factor below that and I think we will continue to shrink which as I mentioned earlier is a very good thing for the industry as a whole.

Smedes Rose: Our next question comes from Smedes Rose with City. Please proceed with your question. Hi, thanks. I just wanted to follow up. You mentioned expectations of lower deliveries. I think industry-wide in 24 and 25.

Joe Ross-Lonton Boyle: Can you just quantify that a little more in terms of either dollars and vestiges you're seeing in the space or a percent increase in existing supply and are there any markets where you see the outside growth coming up for one reason or another or anywhere that's particularly favorable, meaning very little growth? Yeah, Smedes, a lot of moving parts there, but step by step, and we've been speaking to this for some time, we've been seeing the usually difficult hurdles you go through to get projects A approved and then B funded it now again with the constraints I just spoke to in the lending environment.

Thanks, so much.

Thank you.

Our next question is from Caitlin Burrows with Goldman Sachs. Please proceed with your question.

Hi, just a couple quick follow ups I think I was wondering I know this simply storage.

It was still pretty fresh, but wondering if you could go through.

Whether you've started to realize any synergies <unk> just go through the near term strategies you're implementing.

Yeah Caitlin.

I mentioned in my opening comments that our goal with that portfolio, which is to date.

Our largest private transaction with a 127 assets coming to us.

Joe Ross-Lonton Boyle: Getting them into production themselves. So statistically, we think most of the information out there is not accurate because it's not reflective of the continued deceleration and annual deliveries from a step-by-step basis going from this year to 24 and likely in a 25, we think that the pool of assets that had been predicted to deliver are probably shrinking by plus or minus at least 10% or more on a per annum basis. We had kind of ratcheted down to a delivery level nationally plus or minus 3 billion or so of assets in the 2022 to 2023 time frame and that's going to continue to notch down in our view based on all the constraints that I just spoke to.

The benefit that we saw in that portfolio as it crosses 18 different states. It didn't put any undue burden on our ops team market to market and frankly over the last three or four years, we've become very good at integration on a whole level of different scale market to market, where we've seen certain portfolios.

<unk>.

With dozens of assets, whether it was easy storage in the Washington, DC market or.

The portfolio.

Palio that we bought in Dallas Fort worth that again was.

Again very efficiently.

Brought into the portfolio on a much more concentrated basis, but this portfolio from an advantage and integration standpoint was different it was definitely sizable.

Joe Ross-Lonton Boyle: So it's a very good thing for the industry as a whole. Can't really point to any number of markets at the moment are overburdened from a delivery standpoint outside of potentially Las Vegas, Phoenix to a degree, Portland's starting to work through it, but a little bit of an outstretched level of new deliveries in that market as well.

And we were able to deploy many of the techniques that we've used over the last few years to integrate those assets now from a data integration standpoint again, our toolkit has become incredibly strong relative to the efficiency.

As I mentioned, we pulled 90000 customers onto our portfolio overnight.

That synergy.

Joe Ross-Lonton Boyle: But, frankly, the good news is the amount of deliveries that have come to the market over the last couple of years has been slower and it's likely to continue to get slower from a volume standpoint going in the next couple of years. Great. Thank you.

<unk> continues to play quite well now that we're in the seventh week or so of owning those assets.

We were able to integrate and train 250 plus new.

Employees that came to us from that portfolio, great additions to the platform as well.

Joe Ross-Lonton Boyle: And then I did some of the ask to you, you mentioned that I think in the past that renters tend to have a longer length of today. So are you seeing that in the portfolio now if you just talk a little bit more about where length of state is and the changes you might be seeing. Yeah, in terms of length of state overall continues to be quite strong. So we've spoken a lot over the last couple of years in terms of how that's extended from call it 32, 33 months on average.

So that opportunity from a training synergy and adaptability standpoint has gone very effectively.

And we're also leveraging many of the things we do day in and day out to drive margins.

Again with the scale that we've got.

Market to market the ability for us to.

See optimization, so we really haven't seen any shortfalls at all and if anything we've been pleasantly surprised with the continued strength of that portfolio.

Joe Ross-Lonton Boyle: If you take a snapshot of all of our tenants in place pre pandemic to more like 35, 36 and that persists today and then that's persisting in environment where obviously adding more new tenants, which brings that average down. So continue to see strong strong trends there. Customers that have been with us for longer than than two years continues to punch well above where we were pre pandemic in the 40s as a percentage of the total tenant base. And that continues to be the most most stable and important component of the tenant base. Thank you.

Occupancy is holding quite well.

The transition from both customers to our platform the transition from the branding is going very effectively we will have that finished no later than the end of the year, we see definite inherent value to transitioning what were once blue properties to orange properties.

And we're very excited about what we've got ahead of us because we think that that portfolio as a whole is very additive to the scale that we've got across the 18th state side I spoke too so.

Eric Luebchow: Our next question comes from Eric Luebchow with Wells Fargo. Please proceed with your question. I appreciate the question, guys.

I'm very pleased by again, the tools that we've got and the ability to exercise the synergies Tom spoke to some link this morning about many of the tools. We're using right now from a revenue management standpoint, whether it's tied to new customer top of funnel demand and or existing customer opportunities. So those two are <unk>.

Eric Luebchow: I wanted to go back to the ECRI discussion from earlier. I think you talked about higher cost of replaces, you know, somewhat moderated your ability to push through ECRIs to some degree, but does that dynamic shift at all given your loading more new customers now at lower rates? Can you push ECRIs harder and faster with this cohort given the cost to replace presumably for them is slightly lower than your in-place customer?

Toggles that we're deploying into that portfolio as we speak and not seeing any anything thats going sideways. In fact are more encouraged that things are actually even better than what we predicted when we underwrote the portfolio.

Eric Luebchow: That's spot on Eric. So as we talk about the tenant base overall, right, the cost to replace has gone higher, but those new tenants that have moved in this year, right, don't have that same dynamic. And are more like customers in prior years with a lower cost to replace and are likely to receive higher magnitude and frequency of increases, which is supportive as we move more customers in through 2023 into 24 and 25.

Eric Luebchow: Okay, great.

Great and then maybe another quick one I know you've touched on a number of different ways about the lower expected deliveries in 'twenty four and 'twenty five.

Which is encouraging so that would suggest that you started to see development starts slow I was just wondering if you could talk about the magnitude of that slowdown <unk>. When it started like how new is that.

Well, it's been you know year by year transition Aerie, we hit a peak of deliveries back in 2019, or so timeframe with plus or minus say $5 billion of assets that were.

Tom: And then just one last one, if you could touch on the cost side, you've seen marketing expenses, payroll utilities continue to increase, so especially with an uncertain demand backdrop in the next year, you know, how, if you can talk about how effectively you'll be able to manage your cost and any cost line items that we should be aware of that will be pressure points in your, you know, I growth outlook for next year. Yeah, so I guess starting with marketing, right, marketing is the one that this quarter was up most notably.

Again out of the market, which actually equates about 5% of additional inventory.

As I mentioned this year, it's now down to about $3 billion or about 3%. We think that that's going to notch down by at least another 10% factor each successive year between 2024 and 2025 by the time, we get to 2025, we may be in the low 2% range of delivery.

Tom: We continue to get very good returns on the marketing spend that we're utilizing, and that is a process that we manage dynamically at the local level in conjunction with promotions and rental rates as Joe highlighted earlier. If you look at marketing spend over time, we've historically been in a range of say one to 3% of revenue spent on marketing. We got all the way down to 1% or so in 2021. And I think this quarter we sat right around 2% 2.1%.

He's from us inventory standpoint and to your point.

That's a good thing.

And gives us a very different opportunity to leverage our opportunity is not only the largest developer in the sector, but the only public developer of assets and we're able to do many things even more efficiently because of our scale, we've got with our own development team and the amount of capital that we can.

Sensibly deploy into development and redevelopment opportunities.

Okay. Thanks.

Thank you.

Tom: So there's continues to be a room at least up from a historical lens for us to continue to increase that and see good return associated with that. And we'll do that. I would think about marketing spend on the expense line item certainly will create higher levels of expense growth, but that's going to be an NLI positive investment given the returns we're seeing. The other line items, utilities as well as property payroll, continue the areas that are strategic initiatives that we outlined at investor day continue to bear fruit.

Our next question comes from Keybanc, Kim with <unk> Securities. Please proceed with your question.

Thank you.

So you guys mentioned that you were testing out some additional promotional activity in October call. It false fall our Halloween special.

Just curious.

Do you plan on keeping that type of promotional activity path.

Past October into November or would those come off.

Yes.

Sales or something that the company has been doing for for years and years.

Tom: So as we close 2023, we will meet our 25% payroll hour reduction that we highlighted at investor day that's helped offset as we've gone through initiatives around technology as well as specialization and centralization of property roles that are leading to career advancement opportunities and as well as good efficiencies and good customer experience. So that's one side that will continue through 2024 to benefit us. And the other is our solar power programs.

Go back and look at pre pandemic activities at the.

Company started doing memorial day sales going back probably more than a decade ago.

Good good traction from that and so around holidays, we oftentimes will run sales and get some traction that we offer discounts.

Discounts on select units.

In our markets that we operate in and.

We've seen good traction on that this year, we get a memorial day sale, we did a labor day sale in this this one I don't know if you call. It a Halloween sale are we I think we call. It a false sale on the website, but it will wrap up today and we see good good customer demand traffic and others in the industry due to the big public Reits generally run these types of sales.

Tom: We'd like to put solar on over a thousand rules. And today we're sitting with solar will finish the year with around 500 of those complete. And we think there's more more to go there which will help offset utility pressure and in addition to that be good for the environment and our carbon emissions.

As well and so they're good traffic drivers and they get the team in the field excited as well and we see good conversion there so.

It's a part of the business that's been around for some time and.

We will continue to use it as we have in the past we didn't use them in 'twenty one 'twenty two because we frankly were to fall for it to make a lot of sense, but.

Tom: All right. Thank you guys. Appreciate it. Thanks, Eric.

Keegan Carl: Our next question is from Keegan Carl with Wolf Research. Please proceed with your question. Yeah, so I hate to believe at the point on ECRI, but maybe just on 4Q in particular, when do you guys typically stop sending rates for the year and does the current operating environment change that plan at all versus historical levels? No, as I noted, the existing customer base continues to perform as expected and frankly very stable versus the prior several years, which is encouraging.

We're back to a an occupancy environment, where it makes good sense and so we're utilizing it again.

Okay and on the debt maturity.

Have a U S. Note on Euro note coming due next year, just any high level thoughts you can share on refinancing plan.

Yes, we will plan to refinance those as we get into 2024 seven.

700 million U S node is a floating rate note.

And we'll plan to refinance that.

Keegan Carl: So our program continues. It's part of how we manage revenues and that's not going to change. We won't change in the fourth quarter and don't anticipate it to change into 24. You're borrowing any any significant shock or change so that continues to be a strong point as it relates to the overall customer base and wouldn't point to anything significant there. I guess just to clarify though, you're comfortable sending increases throughout the entire year. Like the quarter, you're not going to stop around the holidays. I thought that was a trend that's typically in present and storage. No, we send increases throughout the year.

We get into the first part of the year.

And I'm, assuming the spreads would be pretty similar or should I expect that to change.

Well it depends on ultimately what Turner, we issue and the nature of the interest rates at the time, but it's a floating rate note as I said, so it's at market from a benchmark rate standpoint.

So there won't be.

Significant headwind associated with refinancing that particular note.

Moreover, spreads and.

And we will update you on financing costs as we get into the first quarter and frankly, that's it I mean, if you look at our balance sheet overall.

We obviously have a very long dated Sept finney.

Financing tools, most notably the over $4 billion of preferred stock that we we don't need to refinance ever but we can refinance at our election to the extent interest rates change and.

Tom: Okay, and then just shifting gears here. So you guys obviously over and don't you're interested in coming the quarter just given the hold on to cash prior to closing on simply. Just curious what a good run rate for this would be going forward. Yeah, that's a good question. So as as everyone's aware, we announced the simply transaction on Monday and July, we did the financing associated with that transaction on the same day, which was meant to match fun both the acquisition as well as the financing associated with it.

And we have a very well ladder maturity profile. So you are highlighting some some refinancing we have 24, we have modest in 'twenty five a little bit more in 'twenty six but overall, a very small percentage of of the capital structure is coming due in any given year.

Okay. Thank you.

Thanks, Kevin.

As a reminder, if you'd like to ask a question. Please press star one on your telephone keypad, one moment, while we poll for questions.

Tom: And hindsight that looks pretty good because interest rates are up over a hundred basis points since that time period. But the other benefit was we obviously sat on that cash for a period of time and believe it or not, we actually we eaked out a positive spread on that cash versus our financing costs given where we can earn on cash about three basis points to nothing to write home about. But it certainly led to both higher interest income for the quarter as well as higher interest expense because we were sitting on that cash and we had raised it for a period of time.

Our next question comes from Mike Mueller with Jpmorgan. Please proceed with your question.

Yeah, Hi, just a real quick one here Joe when you were talking about cap rates trending to 6% to 7%.

Is that was that meant to be a day, one cap rate, if you're buying a stabilized asset or is that more the yield that youre looking at if youre buying vacancy it assuming the lease up risk.

Yeah, I mean again.

That would be on our view of what a stabilized expectation would be if youre dealing with a highly stabilized existing asset that too I think it would be in that similar zone.

Tom: No real impact to FFO, but certainly drove incremental. And then if you think about that interest and other income line, right, you're just doing some simple map, 2.2 billion in cash and sitting on it, earning a little over five percent. I think we get the numbers for 50 days of about a 15 million benefit during the quarter. So you can think about that as not recurring. We won't be sitting on that 2.2 billion in cash in the fourth quarter. Got it.

Theres always going to be a gap or some kind of a.

A risk that youre going to inherit the timing again, we've been more comfortable doing that knowing if we can buy an underperforming asset at a going in lower yield will be able to extract the kind of ultimate.

Value and yield hurdle that we're speaking to so those are the stabilized yields that we're we're aiming at Mike is we're looking at investments in this arena right now.

Tom: Thanks for time, guys, and happy Halloween. Thanks, Keith. Thank you. Happy Halloween.

Ron Camden: Our next question comes from Ron Camden with Morgan Stanley. Please proceed with your question. Hey, just two quick ones. I think you guys were one of the first this year to talk about the potential of same-store revenue to go negative and obviously the guidance and 4Q implies that it does that. And, you know, I think we could sort of use your wisdom as we're thinking about toward the next year. If I go back to that, move and move out spread down 26 percent in 3Q, which got a little bit worse, it sort of suggests that things are still sort of decelerating.

Got it okay. Thank you.

You bet.

There are no further questions at this time I'd like to turn the floor back over to Ryan Burke for closing comments.

Thanks, Rob and thanks to all of you out there for joining us today have a great Halloween and we will talk to you soon.

This concludes today's conference you may disconnect your lines at this time and we thank you for your participation.

Ron Camden: So the question really is, like, as we're thinking about next year, is it occupancy response? Is it length of say? Like, what sort of factor should be be watching to get a sense of the direction of the same-store trend into next year?

Joe Ross-Lonton Boyle: Well, Ron, I think there's a few things there that I'll pick out and comment on. One is, certainly we started 2023 at a point of, you know, particular strength and right, rents were significantly higher. I've commented on some of the positives and negatives that have played through this year, but no question growth rates have moderated through the year, commented on move in rates, in particular, have been softer than expected. And I think that's certainly the case as we move through the third and the fourth quarter here.

Joe Ross-Lonton Boyle: Going into 2024, you know, I'm not going to speak to specifics, but one of the things that we spent a good bit of time on earlier in the year, talking about this year was that comps eased in the second half, because the environment started to change last year. And I would suggest that that's not just a second half of 2023 thing. It's also in the 2024, as we work through a demand environment that's softened through 2023, as well as move in rents that declined through 2023.

Joe Ross-Lonton Boyle: And so for the same reasons that we discussed moderation in deceleration or easy comps in the second half of 2023, maybe we haven't seen that as much as we initially envision, but we've also seen, you know, the levels of performance of the existing tenants make up some of that rental rate comp dynamic. But we're still to your point, looking at negative, same-store revenue growth at the midpoint in the fourth quarter to your point.

Joe Ross-Lonton Boyle: We were highlighting that in February. You know, our outlook for the fourth quarter has gotten better as we move through the year. You know, I think the midpoint now is down 50 basis points and same-store revenue. So, you know, almost there at flat, which is frankly an improvement from where we were sitting starting the year.

Joe Ross-Lonton Boyle: And to your point on 2024, I think it probably said as much as I should. We'll be providing a good bit more detail in February on the assumptions. And fresh guidance for the year. Great. And then my second question was just going back to the supply question, but instead of just like the macro forecast, you guys have a sense of how much of the portfolio is actually competing directly with new supply.

Joe Ross-Lonton Boyle: High level is it a quarter? Is it half? Just trying to get a sense of the range of the actual assets that are competing with new supply. Thanks. Yeah, that's going to vary on market to market. You know, there's a whole spectrum. You know, as I mentioned, our largest market, you know, being here in Southern California, you know, almost no new supply to speak to, you know, other parts of the country that are well known to be the tougher markets to develop into, you know, have same similar dynamics.

Today's conference has ended please disconnect your lines at this time. Thank you.

Joe Ross-Lonton Boyle: You know, I mentioned on the other end of the spectrum, you know, we're keeping a close eye on the amount of deliveries that are playing through in Phoenix and Las Vegas. But, you know, frankly, it goes right down to a very sub market impact. And I would say it's, you know, it's less than in continuing to shrink below the lower number you pointed to. You know, whether it's 20% or lower, it's definitely a factor below that. And I think we'll continue to shrink which, as I mentioned earlier, is a very good thing for the industry as a whole. Thank you so much. Thank you.

Okay.

Caitlin Burrows: Our next question is from Caitlin Burrows with Goldman Sachs. Please proceed with your question. Hi, just a couple of quick follow-ups, I think.

Okay.

Joe Ross-Lonton Boyle: I was wondering, I know this simply storage deal is still pretty fresh, but wondering if you could go through whether you've started to realize any synergies and or just go through the near-term strategies you're implementing? Yeah, Caitlin. I mentioned my opening comments that our goal with that portfolio, which is to date our largest private transaction with 127 assets coming to us. The benefit that we saw in that portfolio is it crosses 18 different states, it didn't put any undue burden on our ops team market to market.

Joe Ross-Lonton Boyle: And frankly, over the last three or four years, we've become very good at integration on a whole level of different scale market to market, where we've seen certain portfolios with dozens of assets, whether it was easy storage in the Washington DC market or the portfolio that we bought in Dallas Fort Worth that again was very efficiently brought into the portfolio on a much more concentrated basis, but this portfolio from an advantage and integration standpoint was different, it was definitely sizable and we were able to deploy many of the techniques that we've used over the last few years to integrate those assets. Now, from a data integration standpoint, again, our toolkit has become incredibly strong relative to the efficiency.

Joe Ross-Lonton Boyle: As I mentioned, we pulled 90,000 customers on our portfolio overnight. That synergy continues to play quite well now that we're in the seventh week or so of owning those assets. We were able to integrate and train 250 plus new employees that came to us from that portfolio, great additions to the platform as well. So that opportunity from a training, synergy, and adaptability standpoints gone very effectively. And we're also leveraging many of the things we do day in and day out to drive margins.

Joe Ross-Lonton Boyle: Again, with the scale that we've got market to market, the ability for us to see optimization. So we really haven't seen any shortfalls at all. And if anything, we've been pleasantly surprised with the continued strength of that portfolio. Occupancy is holding quite well. The transition from both customers to our platform, the transition from the branding is going very effectively. We'll have that finished. No later the end of the year, we see definite inherent value to transitioning what were once blue properties to orange properties.

Joe Ross-Lonton Boyle: And we're very excited about what we've got ahead of us because we think that that portfolio as a whole is very additive to the scale that we've got across the 18th state, so I spoke to. So very pleased by again the tools that we've got and the ability to exercise the synergies. Tom spoke to some link this morning about many of the tools we're using right now from a revenue management standpoint, whether it's tied to new customer, top of funnel demand, and or existing customer opportunities.

Joe Ross-Lonton Boyle: So those two are different toggles that we're deploying into that portfolio as we speak and not seeing anything that's going sideways. In fact, more encouraged that things are actually even better than what we predicted when we underwrote the portfolio. Thank you. Great.

Joe Ross-Lonton Boyle: And then maybe another quick one. I know I've talked a number of different ways about the lower expected deliveries in 24 and 25, which is encouraging. So that would suggest that you started to see development start slow. I was just wondering if you could talk about the magnitude of that slowdown and or when it started like how new is that? Well, it's been, you know, year by year transitionary. You know, we hit a peak of deliveries back in the 2019 or so time frame.

Joe Ross-Lonton Boyle: You know, with plus or minus a 5 billion of assets that were, you know, again, added the market, which actually equates about 5% of additional inventory. As I mentioned, you know, this year is now down to about, you know, 3 billion or about 3%. We think that that's going to notch down by at least another 10% factor each successive year between 2024 and 2025. By the time we get to 2025, we may be in the, you know, the low two.

Joe Ross-Lonton Boyle: 2% range of deliveries from us inventory standpoint. And to your point, it's that's a good thing. And gives us a very different opportunity to leverage our opportunity is not only the largest developer in the sector, but the only public developer of assets and, you know, we're able to do, you know, many things even more efficiently because of the scale we've got with our own development team and the amount of capital that we can sensibly deploy into development redevelopment opportunities. Okay, thanks. Thank you.

Ki Kim: Our next question comes from Kibin Kim with truest securities. Please proceed with your question. Thank you. So you guys mentioned that you were testing out some additional promotion activity in October. Call it a fall or Halloween special. I was curious.

Joe Ross-Lonton Boyle: Do you plan on keeping that type of promotion activity past in past October into November or would those come off? Yeah, keep it. You know, sales are something that the company's been doing for years and years. If you go back and look at pre pandemic activities, you know, the company started doing Memorial Day sales going back probably more than a decade ago. And it's a good good traction from that. And so around holidays, we oftentimes will run sales and get some traction that we offer discounts on select units in our markets that we operate in.

Joe Ross-Lonton Boyle: And we've seen good traction on that this year. We did a Memorial Day sale. We did a Labor Day sale. And this this one, I don't know if you want to call it a Halloween sale or I think we call it a fall sale on the website, but it'll wrap up today. And we see good, good customer demand traffic and others in the industry due to the big public weeks generally one of these types of sales as well.

Joe Ross-Lonton Boyle: And so they're good traffic drivers and they get the team in the field excited as well and we see good conversion there. So it's a part of the business that's been around for some time and, you know, we'll continue to use it as we have in the past. We didn't use them in 21, 22 because we frankly were too full for it to make a lot of sense, but we're back to an occupancy environment where it makes good sense and it's a we're utilizing it again.

Tom: Okay. And on the debt maturities, you have a US note and a euro note come and do next year to any high level thoughts you're going to share on brief financial plan. Yeah, we'll plan to refinance those as we get into 2024. The 700 million U.S, node is a floating rate note, and we'll plan to refinance that as we get into the first part of the year. And assuming the spreads would be pretty similar, or should I expect that to change?

Tom: Oh, it depends on ultimately what tannery we issue and the nature of the interest rates at the time. But if a floating rate note, as I said, so it's at market from a benchmark rate standpoint. So that there won't be a significant headwind associated with refinancing that particular note. It'll be more spread and we'll update you on financing costs as we get into the first quarter. And frankly, that's it. I mean, if you look at our balance sheet overall, we obviously have a very long dated set of financing tools, most notably the over $4 billion that prefers stock that we don't need to refinance ever.

Tom: But we can refinance it our election to the extent interest rates change. And we have a very well-latter maturity profile. So you're highlighting some refinancing we have in 24. We have modest in 25, a little bit more in 26. But overall, a very small percentage of the capital structure is coming due in any given year.

Operator: Okay. Thank you. Thanks, Keith. As a reminder, if you'd like to ask a question, please press star one on your telephone keypad. One moment while we poll for questions.

Mike Muller: Our next question comes from Mike Muller with JP Morgan. Please proceed with your question. Yeah, hi. Just a real quick one here. Joe, when you were talking about cap rates trending to 6 to 7%. Was that meant to be a day one cap rate if you're buying a stabilized asset? Or is that more the yield that you're looking at if you're buying vacancy and assuming the lease up risk? Yeah, I mean, again, that would be on our view with a stabilized expectation would be, if you're dealing with a highly stabilized existing asset, that too I think would be in that similar zone.

Mike Muller: There's always going to be a gap or some kind of a risk that you're going to inherit. The timing again, we've been more comfortable doing that, knowing if we can buy an underperforming asset. At a going and lower yield, we'll be able to extract the kind of ultimate value and yield hurdle that we're speaking to. So those are the stabilized yields that we're aiming at, Mike, as we're looking at investments in this arena right now. Got it. Okay, thank you. You bet.

Operator: There are no further questions at this time.

Ryan Burke: I'd like to turn the floor back over to Ryan Burke for closing comments. Thanks, Rob. And thanks to all of you out there for joining us today.

Ryan Burke: Have a great Halloween. We'll talk to you soon.

Operator: This concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation. [inaudible]